CANADA FX DEBT-C$ firms before Fed, Bank of Canada chiefs speak

Tue Jul 16, 2013 5:07pm EDT
 
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* C$ at C$1.0366 vs US$, or 96.47 U.S. cents
    * Manufacturing data shows moderate growth
    * Fed, Bank of Canada rate decision, outlook in focus

    By Alastair Sharp
    TORONTO, July 16 (Reuters) - The Canadian dollar gained
against the U.S. dollar on Tuesday, as traders scaled back bets
on greenback strength and loonie weakness a day ahead of pivotal
central banker appearances in both the United States and Canada.
    The comments by Federal Reserve Chairman Ben Bernanke in
particular are likely to reverberate, with heightened
uncertainty making sharp cent-plus moves a distinct possibility.
    "The market is wound up and confused by Fed rhetoric.
Hopefully there's some clarity, but if there is, traders are
going to jump on it," said Adam Button, currency analyst at
ForexLive in Montreal.
    Fed officials have sought to sound less hawkish since Fed
Chairman Ben Bernanke's mid-June statement that the bank could
scale back its stimulus efforts roiled global markets.
 
    Traders in the Canadian currency will also be looking to the
first interest-rate decision by new Bank of Canada Governor
Stephen Poloz on Wednesday, which coincides with a quarterly
Monetary Policy Report outlining the central bank's view of the
economy.
    Economists polled by Reuters expect the central bank to
leave its benchmark rate unchanged at 1 percent and repeat its
warning that the next move in rates will be an increase.
    But with slow growth and low inflation, a rate increase is
not expected until the fourth quarter of 2014. 
    The Canadian dollar has recently come under pressure from a
rising U.S. dollar valuation and bets that the Canadian currency
had further to fall, although that move stalled last week. 
    "Given the tremendous uncertainty tomorrow, with a new Bank
of Canada governor, we're seeing those bets being scaled back or
exited in rapid fashion today," Button said. "It's a massive
case of cold feet."
    Greg Moore, a currency strategist at TD Securities in
Toronto, said there is a risk that the central bank will send a
more neutral message, which could prompt further Canadian dollar
weakness.
    Domestic data released on Tuesday had little impact.
    Canadian factory sales in May rose 0.7 percent from April,
making up some of the ground lost during a plunge that month.
 
    The "numbers were close enough to consensus; it didn't give
a strong signal in either direction," Moore said.
    The Canadian dollar ended the session trading at
C$1.0366 to the greenback, or 96.47 U.S. cents, compared with
C$1.0415, or 96.02 U.S. cents, at Monday's North American close.
    At one point, it traded as low as C$1.0442 to the U.S.
dollar, or 95.77 U.S. cents, its weakest level since July 11.
    The loonie, as Canada's currency is colloquially known, fell
sharply against its commodity-linked cousin, the Australian
dollar, after minutes from that country's last central
bank meeting provided a less dovish message than investors were
expecting. 
    The price of Canadian government debt was higher across the
curve, with the two-year bond up 2 Canadian cents to
yield 1.122 percent, while the benchmark 10-year bond
 rose 10 Canadian cents to yield 2.404 percent.